George Soros Says EU May Disintegrate, Again

The European Union is at risk of disintegration unless Ireland is allowed to restructure its bank debts, and Greece is allowed to restructure its government debts.

That’s the moderately apocalyptic message George Soros has chosen to bring to this year’s Davos boondoggle.

It’s not the first time Soros has delivered this warning, but it comes at a time when euro-zone policy makers appear to have had some success in convincing nervous investors that the currency area can deal with its debt problems.

AP

George Soros, speaks at the Seehof hotel on the sidelines of the World Economic Forum in Davos, Switzerland on Wednesday, Jan. 26, 2011.

Soros doesn’t disagree, telling the BBC that, narrowly defined, “the euro crisis is on the way to being solved.”

But he argues that the way in which euro-zone policy makers are addressing investor concerns is sowing the seeds for a future crisis, one that threatens the European Union. For Soros, the burden of repaying very large debts will be so great for Ireland, Greece, Portugal and others that it will create a “two-speed Europe,” and political tensions that could at some point force some of those countries out of the bloc.

It has to be said that a small number of small countries leaving a group of 27 nations, many of which are very large by comparison, isn’t exactly disintegration. It’s more like a slight shrinkage in something that has already grown way beyond anyone’s imaginings.

After all, the EU started with six members in the 1950s, and had only managed to rise to 15 by the time of the big expansion in 2004.

But it’s also unclear why nations facing debt problems would leave the EU, rather than the euro zone. They might have to drop the euro to gain some competitiveness in export markets and default on their debts without doing too much damage to the currency area as a whole, but leaving the EU wouldn’t help, and would hurt a lot. That doesn’t mean that Soros is wrong about the need for debt rescheduling, just that he’s conjuring up an excessively gloomy scenario if that isn’t pursued.

As they prepare for a general election on February 25, Irish voters are likely to make their preference for a renegotiation of the nation’s bank debts very clear. And many economists believe that Greece will be unable to stabilize its finances without a debt rescheduling.

For now, euro zone policy makers don’t want to contemplate either possibility, because that might spook investors and make it even harder for Portugal and Spain to borrow in the international bond markets. But there’s little doubt that the burden or repaying and servicing their debts will act as a drag on some euro-zone nations for a very long time, and that it might be better to find a negotiated way of easing that pain.

Comments (5 of 12)

I disagree with G.S, the Greece, Ireland, Spain and Portugal will eventually come out of their debt problems because Germany and France have no other choice but to make sure they succeed.

They can not risk for a major country like Spain to default on its debt, it would be detrimental to the entire region and investors will run for the door and another global panic will destroyed confidence.

In the long, the EU bloc will be fine and the short term, their cost of borrowings will increased.

9:24 pm January 27, 2011

currencychess wrote:

Soros is right up to some extent.. EU should emphasis more towards regulating the member countries rather than simply bailing them out; this can make the taxpayers of the other countries feel extra burdened ; a weak regulatory system will enable them to make these mistakes in future... beside all this i believe that EU will get heavy response in debt market which will be helpful for them to get an easy way out; investors will have a massive shift in EURO dominated bonds from risky assets like stocks and commodities (Gold specifically).. So the bottom is EURO LONG; keep yourself open to learn... an expert's opinion should never be taken as an intended propaganda.....

8:09 pm January 27, 2011

tomger wrote:

Hi guys,your comments are some right some none,as everything in life.But Soros was everytime a guy who didn't spoke to the air,and anything he told was truth.Only a short memory help. On the beginning of 2010 he spoke about Gold which shall rerach 1300 USD/troy unce,few weeks ago Gold was about 1430/troy unce and on the beggining of 2010 as it was a bit over 1100 nobody has taken this notice seriously.OR?

7:35 pm January 27, 2011

Anonymous wrote:

George might be right about EURO disintegration,and he might not.The culprits that might cntribute to this dilemma,are Ireland,and its banking and fiscal problems,portugal is fiscal,Spain is a combination of property,banking and a lesser degree fiscal,not unlike Ireland on a smaller scale.The scale and impact of banking problems in Ireland will impact on the economy for many years to come,mostly on the backs of taxpayers who are being forced to carry a burden ,not of their making.Without intervention,Ireland will default within two years.The impact of this I cannot gauge,Spainish default would impact well beyond euroland.Intelligent and measured intervention by the bigger players on the euroland pitch will prove George wrong.

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